Well, it just got a whole lot more serious following the Prime Minister’s address to the nation on Tuesday evening.  However, how does what is occurring right now affect professional Property Managers, Landlords (“LL”), RTM Companies (“RTM”) and Management Companies (“RMC”) in the management of their developments and, specifically, the right and need to demand and collect charges required to run developments?

As you can imagine, we have seen a huge number of enquiries from clients and subscribers over the past few days with questions around recovery and enforcement and in this update we seek to address many of those questions.

Unlike tenants of residential property let on short tenancies (assured shorthold or alike), there appears to be no programme from the government that will see residential long leaseholders, or residents of property subject to service charges, provided with any greater protection during this difficult period.  Whilst it is the case that matters already subject to action are in effect stayed, or virtually stayed, by virtue of Court postponements (and, possibly soon, closures), at present the harsh reality is for the owner of residential property it is ‘business (or liability) as usual’.

Accordingly, and with the March Quarter Day arriving today, service charges lawfully demanded must be paid in accordance with the lease/transfer covenants and demands served.  In default of full payment, in accordance with the covenants affecting the property, the LL, RTM or RMC can and should enforce. 

That is the basic picture but the reality is likely to be a little less harsh. 

What should the LL, RTM or RMC do in light of COVID-19?

There are a few points to make and, whilst most of these are likely to be common sense, it does not harm to set them out for clarity. 

• The starting point has to be that the LL, RTM or RMC requires the funds demanded in order to function and provide necessary services at the development.  If residents don’t pay then things won’t get done. Possibly not the position as the debtor will see it, given the news coverage of apparent protection to be awarded to ‘tenants’, but the position is that none of that applies to residents liable to pay service charges.  It is therefore the case that, notwithstanding what the debtor may believe to be the case, they are required to pay, and pay now, irrespective of the issues that they are facing as a result of the effects of COVID-19; 

• Given that these are unprecedented and difficult times for many residents but that, notwithstanding, the LL, RTM or RMC needs to receive payment, the emphasis and approach has to be that the primary objective is to obtain payment even if that requires some flexibility in order to achieve it; 

• The Courts are currently open and potentially still processing money claims.  How long that will continue for is of course highly uncertain.  Accordingly, and currently, there appears to be no clear delay or prohibition on taking enforcement steps.  The writers view is that there will not be any prohibition on issuing and enforcing money claims through the court but that delays will almost certainly be incurred as the system slows, or perhaps even shuts down, as we sink further into the effects of COVID -19.   However, that potential delay does not remove from the arsenal of the LL, RTM or RMC the ability to use the threat of proceedings, action and costs as a means to encourage non paying owners to prioritise the payment of service charges; 

• The writer’s view is that all matters should be approached from the stance that the service charge must be paid, for all of the above reasons.  However:

1. If the paying owner is (in the view of the managing agent, LL, RTM or RMC) genuinely in some difficulty in making payment then an assessment should be made as to how that should be addressed.  The options are really only the following:  

   • Where the owner is keen to enter in to an agreement for, say, instalment payments for a fixed period of time and at a level sustainable for the LL, RTM or RMC then every effort should be made to accommodate that where possible. Any agreement reached should be in writing (a letter or email will suffice), set out very clearly the terms agreed.  The agreement should contain a provision that the agreement is entirely conditional upon compliance by the owner with all of the terms agreed including the timing and amounts of each instalment and, importantly, that it will be automatically revoked by the owner if they fail to so comply;

   • Where the owner seeks to avoid, for now, making payment at all the LL, RTM  or RMC must consider if that approach is reasonable including whether, irrespective of the circumstances of the owner, the LL, RTM, RMC can sustain non payment for any period.  Again, any agreement should be documented clearly in a confirmatory letter or email to the owner and specifically expressing the date on which any deferment ends.

2. Where an owner is simply unable to pay then it must be remembered that, if they own the property subject to a mortgage, the mortgagee will pay on the owner’s behalf in almost all such circumstances. Such payment can be extracted from the mortgagee without the need for, or heavy costs burden of, court proceedings.  All that is required is the owner’s acknowledgement of the need for assistance.  Seek our advice on how this can be done swiftly and extremely cheaply.

The reality is that whilst the current time is no doubt very hard for people it is not an exemption to pay funds required by the LL, RTM or RMC and thus enforcement action should be progressed if an owner is not paying.  Enforcement action started now will take a certain amount of time in any event.  Add to that delays resulting from the Court inevitably slowing down or closing (the FTT is virtually there already) then delaying the commencement of enforcement action for debts due now will translate to huge delays if you wait until after this COVID-19 issue has finally disappeared over the horizon.  Whilst it may seem harsh LL, RTMs and RMCs must carry on as usual so as to avoid funding issues down the line and that therefore requires action now if monies have not been paid.

The approach suggested above is necessarily hard faced, but LLs, RTMs and RMCs can and should be flexible - to a degree - where owners seek assistance and are willing to try to resolve a payment issue rather than using the current problems as little more than an excuse to avoid/defer payment entirely.   You will be able to tell, in most cases, where you are being spun a yarn or where the owner is genuinely in need of assistance.  Rely on your instincts and act accordingly, being sure to document why a decision was made and the specific terms of any agreement reached.

We are always here if you wish to run a scenario by us.

For more information, please contact Kevin Lever at Kevin.Lever@kdllaw.com or on 01435 897297.

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